Question

E6-4 Analyzing Changes in Price, Cost Structure, Degree of Operating Leverage [LO 6-4, 6-5]

Cove’s Cakes is a local bakery. Price and cost information
follows:

Price per cake | $ | 14.91 | |

Variable cost per cake | |||

Ingredients | 2.18 | ||

Direct labor | 1.08 | ||

Overhead (box, etc.) | 0.29 | ||

Fixed cost per month | $ | 3,748.80 | |

**Required:
1.** Calculate Cove’s new break-even point under each of the
following independent scenarios:

Answer #1

Break even point = fixed cost/ contribution

Contribution = sale price - variable cost

a) break even point = 3748.8/ ( (14.91+1.40) - 3.55)

= 294 cakes

b) BEP = 3748.8+ 485 / (14.91 - 3.55)

= 373 cajes

c) BEP = 3748.8 / (14.91 - (3.55 - 0.34))

= 320 cakes

d) BEP = 3748.8 / ((14.91 - .30) - 3.55)

= 339 cakes

2.

Sales (345* 14.91) | 5143.95 |

Variable expenses (345* 3.55) | 1224.75 |

Contribution (sales - variable) | 3919.20 |

Fixed cost | 3748.80 |

Net operating income | 170.40 |

Degree of operating leverage = contribution / net operating income

= 3919.20 / 170.40

= 23

3. Change in profit = degree of operating leverage * expected increase in sales

= 23 * 13%

= 299 % increase in profit

= in dollars in increase would be 170.40 ( current profit) * 2.99

= $ 509.49

=

Cove’s Cakes is a local bakery. Price and cost information
follows: Price per cake $ 14.31 Variable cost per cake Ingredients
2.18 Direct labor 1.03 Overhead (box, etc.) 0.27 Fixed cost per
month $ 3,790.50
Required: 1. Calculate Cove’s new break-even point under each of
the following independent scenarios: (Round your answer to the
nearest whole number.)
a. Sales price increases by $1.80 per cake.
b. Fixed costs increase by $495 per month.
c. Variable costs decrease by $0.44 per...

Cove’s Cakes is a local bakery. Price and cost information
follows:
Price per
cake
$
14.91
Variable cost
per cake
Ingredients
2.33
Direct
labor
1.18
Overhead (box,
etc.)
0.25
Fixed cost per
month
$
3,233.50
Required:
1. Determine Cove’s break-even point in units and sales
dollars. (Round your Break-Even Units answer to the nearest
whole number. Round your other intermediate calculations and sales
dollars answer to 2 decimal places.)
2. Determine the bakery’s margin of safety if it
currently...

Cove’s Cakes is a local bakery. Price and cost information
follows:
Price per cake
$
14.31
Variable cost per cake
Ingredients
2.32
Direct labor
1.12
Overhead (box, etc.)
0.12
Fixed cost per month
$
3,547.50
Required:
1. Determine Cove’s break-even point in units
and sales dollars.
2. Determine the bakery’s margin of safety if
it currently sells 400 cakes per month.
3. Determine the number of cakes that Cove must
sell to generate $1,500 in profit.

Cove’s Cakes is a local bakery. Price and cost information
follows:
Price per cake
$
13.81
Variable cost per cake
Ingredients
2.33
Direct labor
1.19
Overhead (box, etc.)
0.17
Fixed cost per month
$
3,137.20
Required:
1. Determine Cove’s break-even point in units and sales
dollars. (Round your Break-Even Units answer to the nearest
whole number. Round your other intermediate calculations and sales
dollars answer to 2 decimal places.)
2. Determine the bakery’s margin of safety if it
currently...

Cove’s Cakes is a local bakery. Price and cost information
follows:
Price per cake
$
13.01
Variable cost per cake
Ingredients
2.22
Direct labor
1.09
Overhead (box, etc.)
0.20
Fixed cost per month
$
2,945.00
Required:
1. Determine Cove’s break-even point in units and sales
dollars. (Round your Break-Even Units answer to the nearest
whole number. Round your other intermediate calculations and sales
dollars answer to 2 decimal places.)
2. Determine the bakery’s margin of safety if it
currently...

Cove’s Cakes is a local bakery. Price and cost information
follows:
Price per cake
$
14.41
Variable cost per cake
Ingredients
2.28
Direct labor
1.07
Overhead (box, etc.)
0.20
Fixed cost per month
$
4,887.00
Required:
1. Determine Cove’s break-even point in units
and sales dollars.
2. Determine the bakery’s margin of safety if
it currently sells 510 cakes per month.
3. Determine the number of cakes that Cove must
sell to generate $1,500 in profit.
Complete this question
by...

Cove’s Cakes is a local bakery. Price and cost information
follows:
Price per cake
$
14.11
Variable cost per
cake
Ingredients
2.29
Direct labor
1.06
Overhead (box,
etc.)
0.12
Fixed cost per
month
$
4,894.40
Required:
1. Determine Cove’s break-even point in units and sales
dollars. (Round your Break-Even Units answer to the nearest
whole number. Round your other intermediate calculations and sales
dollars answer to 2 decimal places.)
Break-Even Units
Cakes
Break-Even Sales Dollars
2. Determine the bakery’s margin...

Cove’s Cakes is a local bakery. Price and cost information
follows:
Price per cake
$
13.81
Variable cost per
cake
Ingredients
2.16
Direct labor
1.18
Overhead (box,
etc.)
0.18
Fixed cost per
month
$
3,189.90
Required:
1. Determine Cove’s break-even point in units and sales
dollars. (Round your Break-Even Units answer to the nearest
whole number. Round your other intermediate calculations and sales
dollars answer to 2 decimal places.)
Break Even Units: _____ Cakes
Break Even Sales Dollars:
2....

The Kandy Shop has an operating income of $29,000.
a) Calculate the degree of operating leverage for each of the
independent cases (assuming operating income is held
constant):
i. Contribution Margin is $58,000.
ii. CM ratio is 56% and revenue is $133,000.
iii. Selling price per unit is $34, variable costs per unit are $16
and it sold 3,200 units.
Do not enter dollar signs or commas in the input boxes.
Round contribution margin and operating income to the nearest...

Exercise 6-9 Compute and Use the Degree of Operating
Leverage [LO6-8]
Engberg Company installs lawn sod in home yards. The company’s
most recent monthly contribution format income statement
follows:
Amount
Percent of Sales
Sales
$
143,000
100
%
Variable expenses
57,200
40
%
Contribution margin
85,800
60
%
Fixed expenses
18,000
Net operating income
$
67,800
Required:
1. What is the company’s degree of operating leverage?
2. Using the degree of operating leverage, estimate the impact
on net operating income...

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